PIZZA GUYS - FDD UFOC ITEM 7 Detail

5                      

7.�� ����ESTIMATED INITIAL INVESTMENT

The following table summarizes your Initial Investment (this Item 7), your Initial Franchise Fee (see Item 5), and certain portions of Other Fees (see Item 6). The information in the table is qualified in its entirety by the material set forth in the full text of Items 5, 6 and 7. You must also understand that the following information is merely an estimate, is general in nature, and is subject to wide market fluctuations. The total initial investment necessary to open your Pizza Guys� store will vary considerably from store to store depending upon a number of factors including, but not limited to, the location and size of the proposed store premises, the amount of leasehold improvement necessary, whether you purchase new or reconditioned equipment, the volume of business expected to occur at the proposed store premises, the condition of the financial market at that time, and your particular financial circumstances.

YOUR ESTIMATED INITIAL INVESTMENT

THERE ARE NO OTHER DIRECT OR INDIRECT INITIAL PAYMENTS TO PIZZA GUYS IN CONJUNCTION WITH THE FRANCHISE. NONE OF THESE FEES OR EXPENDITURES ARE REFUNDABLE UNDER ANY CIRCUMSTANCES.

FOOTNOTES:

1                     Initial Franchise Fee: See Item 5, and see Franchise Agreement, section 6.01(a).

2                     You are required to use a Professional Advisor to evaluate the suitability of this investment for your particular circumstances and to advise you of the risks involved. A person is not a Professional Advisor unless he or she is designated by you and consents to act as such by signing the Designation and Consent of Professional Advisor attached to this Franchise Disclosure Document as Exhibit 7; and is either an attorney, certified public accountant or business broker, who is licensed in the jurisdiction where you reside or where the store is to be located and who is unaffiliated with, and is not compensated directly or indirectly by Pizza Guys Franchises, Inc., our affiliates or representatives. See Franchise Agreement, page 2, and Exhibit 7.

3                     Initial Advertising Fee: The initial advertising includes at least 400 complimentary pizzas which you will bear the cost of. You may find it advisable to expend up to $7,500 each month for the first six (6) months your store is open to advertise the opening of your store.

4        Store Premises Lease Advance Rent & Deposit: Upon signing the lease for the store premises, you must pay the third party lessor the first month''s rent and a security deposit (and any other payment required by the lessor). The first month''s rent and security deposit will vary depending upon the amount of the monthly rent. The monthly rent will vary from store to store depending upon a number of factors including, but not limited to: the location and size of the store premises, the length of the store premises lease, the extent of leasehold improvements needed, whether the cost of leasehold improvements are included in the rent, and the amount of the first month''s rent and security deposit. Depending upon the desirability of the location, the current monthly rental rates for store premises suitable for Pizza Guys� takeout and delivery only stores in the greater Sacramento, California area range from approximately $ 1.50 per square foot to $ 3.50 per square foot per month, plus common area maintenance ("CAM") charges where applicable. Pizza Guys�, stores generally operate in approximately 1000 to 1500 square foot premises in retail areas. We estimate that monthly CAM charges in the Northern California area for a typical 1,200 square foot Pizza Guys�. store will range from $315 to $ 800. Based on recent trends, you should anticipate a rent increase of 3% to 7% per year. [Note: The foregoing information is derived from our experience in the Northern California area. Rental rates in other areas may be greater or less.) See note 5 of Item 6 of this Disclosure Document and see Franchise Agreement, sections 6.02 and2.01 attached to this Franchise Disclosure Document as Exhibit I.

Leasehold Improvements: If you buy a Franchise Agreement, it is likely that the store premises will need to be improved in order to make the premises suitable for use as a Pizza Guys� store (commonly referred to as "leasehold" or "tenant" "improvements"). The cost of such leasehold improvements will vary with the size and location of the store premises and the extent of the improvements required. In some instances, the store premises will already have been improved for use as a store, thereby potentially decreasing the extent of improvements necessary for use as a Pizza Guys� store, resulting in cost savings to you. In other cases (such as premises which have never before been occupied), extensive leasehold improvements will be necessary in order to make the premises suitable for use as a Pizza Guys� store, thereby significantly increasing your costs beyond those estimated here. We estimate that leasehold improvements will cost from $50,000 to $ 120,000, depending upon the size of the premises and whether or not the premises have been previously used as a store. See note 6 of Item 6 of this franchise Disclosure Document.

Equipment and Furnishings: If you buy a Franchise Agreement, you must fixture, furnish, equip and decorate the store in accordance with our standards and specifications as revised from time to time. You must have a conveyor oven, hood and ventilation system, mixer, pizza preparation table, cut table, vegetable dicer and sheer, dough sheeter, freezer, safe, walk-in refrigerator, dry storage shelving, pizza warmer holding cabinet, counter tops, cabinetry, a working facsimile machine at all times, telephone (including message on hold system) and a computer utilizing POS System which must be approved by Franchisor, high speed internet connection, as well as other equipment and furnishings on the store premises in order to operate the premises as a Pizza Guys� store. The required equipment and furnishings may be purchased outright, or may be leased, or leased and acquired through a lease/purchase agreement from a variety of sources with costs varying according to the size of the store and the specific features of the equipment and furnishings selected. See item 11.

We estimate that the cost to purchase the required equipment and furnishings outright will range from $55,000 to $95,000 depending upon whether or not you choose new or reconditioned equipment or equipment with basic features or more sophisticated equipment including automatic and electronic features. You will contract directly and make all financial and credit arrangements with the seller or lessor of the equipment and furnishings. All equipment and furnishings must meet our standards and specifications and be purchased from an approved supplier. We may, but are not obligated to, sell or lease the equipment and furnishings to you.

7                     Construction Project Manager Fees: You are required to use a construction coordinator selected by us.

8                     Signage: If you buy a Franchise Agreement you must install approved signage on your store premises. We estimate that the store signage or awning will cost from $1,500 to $ 10,000 depending upon the size and location of the premises and the number of streets or walkways on which the store premises front. You will contract directly and make all financial and credit arrangements with the signage provider. All Signage must meet our standards and specifications and be purchased from a designated or approved suppl ier. We may, but are not obligated to, lease or sell the signage to you.

9                     Insurance Coverage: You are required to have Employer''s Liability insurance with a $ 100,000 minimum limit; Worker''s or Workmen''s Compensation Insurance as prescribed by law in the state in which the store is located; Comprehensive General Liability Insurance (including products liability coverage, excess and non-owned driver liability and a broad form advertising injury endorsement) with a $1,000,000 combined single limit for Bodily Injury and Property Damage per occurrence; any additional insurance required by the store premises lease; and any additional insurance required by any equipment lease. A $2,000,000 umbrella policy is recommended but not required. See Franchise Agreement, section 9.02. Although the expense of such coverage will vary from state to state and region to region, we estimate that you will expend between $2,000 to $6,000 per year to maintain such coverage. Payments are made monthly. Only two months'' payments (e.g., $290 to $430) must be paid initially. We recommend that you take out an Employment Practices Liability Insurance policy which covers potential claims made by your employees for: wrongful refusal to employ a qualified applicant for employment; wrongful failure to promote, or wrongful deprivation of career opportunity; wrongful demotion, negligent evaluation, negligent reassignment or wrongful discipline; wrongful termination; employment related misrepresentation; harassment, coercion, discrimination; or oral or written publication or material that slanders, defames or libels or violates or invades a right of privacy.

10                  Miscellaneous Costs: You are required to have on hand sufficient funds to meet miscellaneous expenses including, but not limited to, the payment of telephone and utilities deposits, health department licensing fees, initial sales tax deposit, small equipment and other isolated or recurring charges. The total amount of funds necessary will vary from store to store depending upon a number of factors including, but not limited to, location and size of the store and the number of persons employed. We estimate that miscellaneous costs will range from $3,000 to $6,000.

Security deposits, utility deposits, sales tax deposits, business licenses, and other prepaid expenses are included under miscellaneous costs. The advance rent and deposit for the store premises lease are discussed in detail in Items 6 and 7, above. If you have previously established business credit, then security deposits will fall within the aforementioned range for miscellaneous costs. However, if you have not previously established business credit, your required deposits will exceed that amount.

Additionally, in the event that you lease the store equipment and furnishings, you will generally be required to pay the equipment lessor advance rent and/or a security deposit of $5,000 to $ 10,000 (i. e., 10% to 20% of the lessor''s purchase price for the equipment, varying with the quality of your credit). You should also expect to pay for other miscellaneous leased equipment.

Municipal Sewer Hook-up Fees: It has come to our attention that some municipalities have begun charging a substantial fee for the first time a building is connected to the municipal sewer system. The fee, if charged, can range from $3,000 to $20,000. Whether or not a sewer hook-up fee is charged and the amount of the fee is totally dependent upon the local ordinances of the county, city or other municipality having jurisdiction over the proposed store premises. It is your responsibility to ascertain and to inform us of what fees will be charged by the local jurisdiction. The sewer hookup fee is not included in our estimate of miscellaneous costs for the following reasons: since the sewer hook-up remains a permanent part of the building, if negotiated prior to signing the lease, the lessor will sometimes pay the fee; also, in our experience, where the fee is charged, it is either less or normally not charged in the case of buildings which have previously been occupied as a store. Accordingly, in communities where such fees are charged, you should consider leasing a previously occupied building instead of a new building.

11                  Opening Inventory: Prior to opening, you are required to purchase and have on hand such foods, beverages, pizza containers, cups, paper goods and other inventory as we specify ("opening inventory"). We estimate that the opening inventory will cost approximately $4,500 depending upon the store''s anticipated initial sales.

12                  Additional Funds - 3 Month''s Estimate: We estimate that $10,000 to $30,000 will be necessary to operate the store for 3 months after opening.

Store Equipment and Furnishings Leased: Should you lease the equipment and furnishings, you will incur a lease payment which is unknown to us but the amount of your payment will depend on your credit worthiness and lease terms negotiated.